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Irs Online 1040ez

Irs online 1040ez Publication 597 - Introductory Material Table of Contents Introduction Introduction This publication provides information on the income tax treaty between the United States and Canada. Irs online 1040ez It discusses a number of treaty provisions that often apply to U. Irs online 1040ez S. Irs online 1040ez citizens or residents who may be liable for Canadian tax. Irs online 1040ez Treaty provisions are generally reciprocal (the same rules apply to both treaty countries). Irs online 1040ez Therefore, a Canadian resident who receives income from the United States may refer to this publication to see if a treaty provision may affect the tax to be paid to the United States. Irs online 1040ez This publication does not deal with Canadian income tax laws; nor does it provide Canada's interpretation of treaty articles, definitions, or specific terms not defined in the treaty itself. Irs online 1040ez The United States—Canada income tax treaty was signed on September 26, 1980. Irs online 1040ez It has been amended by five protocols, the most recent of which generally became effective January 1, 2009. Irs online 1040ez In this publication, the term “article” refers to the particular article of the treaty, as amended. Irs online 1040ez Prev Up Next Home More Online Publications

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Irs online 1040ez Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. Irs online 1040ez The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. Irs online 1040ez If you are requesting relief for more than three tax years, you must file an additional Form 8857. Irs online 1040ez The IRS will review your Form 8857 and let you know if you qualify. Irs online 1040ez A completed Form 8857 is shown later. Irs online 1040ez When to file Form 8857. Irs online 1040ez You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. Irs online 1040ez The following are some of the ways you may become aware of such a liability. Irs online 1040ez The IRS is examining your tax return and proposing to increase your tax liability. Irs online 1040ez The IRS sends you a notice. Irs online 1040ez You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. Irs online 1040ez (But see the exceptions below for different filing deadlines that apply. Irs online 1040ez ) For this reason, do not delay filing because you do not have all the documentation. Irs online 1040ez Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. Irs online 1040ez The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. Irs online 1040ez This includes the filing of a proof of claim in a bankruptcy proceeding. Irs online 1040ez The filing of a suit by the United States against you to collect the joint liability. Irs online 1040ez The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. Irs online 1040ez The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. Irs online 1040ez Exception for equitable relief. Irs online 1040ez On July 25, 2011, the IRS issued Notice 2011-70 (available at www. Irs online 1040ez irs. Irs online 1040ez gov/irb/2011-32_IRB/ar11. Irs online 1040ez html) expanding the amount of time to request equitable relief. Irs online 1040ez The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. Irs online 1040ez Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. Irs online 1040ez In certain cases, the 10-year period is suspended. Irs online 1040ez The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. Irs online 1040ez See Pub. Irs online 1040ez 594, The IRS Collection Process, for details. Irs online 1040ez Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. Irs online 1040ez But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. Irs online 1040ez See Pub. Irs online 1040ez 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. Irs online 1040ez Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. Irs online 1040ez Exception for relief based on community property laws. Irs online 1040ez If you are requesting relief based on community property laws, a different filing deadline applies. Irs online 1040ez See Relief from liability arising from community property law discussed later under Community Property Laws . Irs online 1040ez Form 8857 filed by or on behalf of a decedent. Irs online 1040ez An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. Irs online 1040ez An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. Irs online 1040ez For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. Irs online 1040ez Situations in which you are not entitled to relief. Irs online 1040ez You are not entitled to innocent spouse relief for any tax year to which the following situations apply. Irs online 1040ez In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. Irs online 1040ez In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. Irs online 1040ez You entered into an offer in compromise with the IRS. Irs online 1040ez You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. Irs online 1040ez Exception for agreements relating to TEFRA partnership proceedings. Irs online 1040ez You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. Irs online 1040ez (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. Irs online 1040ez ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). Irs online 1040ez Transferee liability not affected by innocent spouse relief provisions. Irs online 1040ez The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. Irs online 1040ez Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. Irs online 1040ez Example. Irs online 1040ez Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. Irs online 1040ez Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. Irs online 1040ez In August 2010, the IRS assessed a deficiency for the 2008 return. Irs online 1040ez The items causing the deficiency belong to Herb. Irs online 1040ez Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. Irs online 1040ez However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. Irs online 1040ez The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. Irs online 1040ez There are no exceptions, even for victims of spousal abuse or domestic violence. Irs online 1040ez We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. Irs online 1040ez If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. Irs online 1040ez However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. Irs online 1040ez If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. Irs online 1040ez Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. Irs online 1040ez The IRS sends you a final determination letter regarding your request for relief. Irs online 1040ez You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. Irs online 1040ez If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. Irs online 1040ez The United States Tax Court is an independent judicial body and is not part of the IRS. Irs online 1040ez You must file a petition with the United States Tax Court in order for it to review your request for relief. Irs online 1040ez You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. Irs online 1040ez If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. Irs online 1040ez You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address: United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. Irs online 1040ez ustaxcourt. Irs online 1040ez gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. Irs online 1040ez Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Irs online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Irs online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Irs online 1040ez Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. Irs online 1040ez Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. Irs online 1040ez You did not file a joint return for the tax year. Irs online 1040ez You did not include the item of community income in gross income. Irs online 1040ez The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. Irs online 1040ez Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. Irs online 1040ez Your spouse's (or former spouse's) distributive share of partnership income. Irs online 1040ez Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Irs online 1040ez Use the appropriate community property law to determine what is separate property. Irs online 1040ez Any other income that belongs to your spouse (or former spouse) under community property law. Irs online 1040ez You establish that you did not know of, and had no reason to know of, that community income. Irs online 1040ez See Actual Knowledge or Reason To Know , below. Irs online 1040ez Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. Irs online 1040ez See Indications of unfairness for liability arising from community property law, later. Irs online 1040ez Actual knowledge or reason to know. Irs online 1040ez You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. Irs online 1040ez Amount of community income unknown. Irs online 1040ez If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. Irs online 1040ez Not knowing the specific amount is not a basis for relief. Irs online 1040ez Reason to know. Irs online 1040ez The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. Irs online 1040ez The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. Irs online 1040ez The financial situation of you and your spouse (or former spouse). Irs online 1040ez Your educational background and business experience. Irs online 1040ez Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Irs online 1040ez Indications of unfairness for liability arising from community property law. Irs online 1040ez The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. Irs online 1040ez The following are examples of factors the IRS will consider. Irs online 1040ez Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). Irs online 1040ez Whether your spouse (or former spouse) deserted you. Irs online 1040ez Whether you and your spouse have been divorced or separated. Irs online 1040ez For other factors see Factors for Determining Whether To Grant Equitable Relief later. Irs online 1040ez Benefit from omitted item of community income. Irs online 1040ez A benefit includes normal support, but does not include de minimis (small) amounts. Irs online 1040ez Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. Irs online 1040ez For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. Irs online 1040ez Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). Irs online 1040ez How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. Irs online 1040ez Fill in Form 8857 according to the instructions. Irs online 1040ez For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. Irs online 1040ez However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. Irs online 1040ez The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. Irs online 1040ez Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Irs online 1040ez Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). Irs online 1040ez However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. Irs online 1040ez The IRS can collect these amounts from either you or your spouse (or former spouse). Irs online 1040ez You must meet all of the following conditions to qualify for innocent spouse relief. Irs online 1040ez You filed a joint return. Irs online 1040ez There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). Irs online 1040ez You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). Irs online 1040ez See Actual Knowledge or Reason To Know, later. Irs online 1040ez Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. Irs online 1040ez See Indications of Unfairness for Innocent Spouse Relief , later. Irs online 1040ez Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. Irs online 1040ez A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Irs online 1040ez Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. Irs online 1040ez Erroneous Items Erroneous items are either of the following. Irs online 1040ez Unreported income. Irs online 1040ez This is any gross income item received by your spouse (or former spouse) that is not reported. Irs online 1040ez Incorrect deduction, credit, or basis. Irs online 1040ez This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). Irs online 1040ez The following are examples of erroneous items. Irs online 1040ez The expense for which the deduction is taken was never paid or incurred. Irs online 1040ez For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. Irs online 1040ez The expense does not qualify as a deductible expense. Irs online 1040ez For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. Irs online 1040ez Fines are not deductible. Irs online 1040ez No factual argument can be made to support the deductibility of the expense. Irs online 1040ez For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. Irs online 1040ez Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. Irs online 1040ez Actual knowledge. Irs online 1040ez If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Irs online 1040ez You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Irs online 1040ez For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. Irs online 1040ez Reason to know. Irs online 1040ez If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Irs online 1040ez You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Irs online 1040ez The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. Irs online 1040ez The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. Irs online 1040ez The financial situation of you and your spouse (or former spouse). Irs online 1040ez Your educational background and business experience. Irs online 1040ez The extent of your participation in the activity that resulted in the erroneous item. Irs online 1040ez Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question. Irs online 1040ez Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Irs online 1040ez Partial relief when a portion of erroneous item is unknown. Irs online 1040ez You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. Irs online 1040ez You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. Irs online 1040ez Example. Irs online 1040ez At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. Irs online 1040ez The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. Irs online 1040ez You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. Irs online 1040ez The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. Irs online 1040ez The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. Irs online 1040ez Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. Irs online 1040ez The following are examples of factors the IRS will consider. Irs online 1040ez Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. Irs online 1040ez Whether your spouse (or former spouse) deserted you. Irs online 1040ez Whether you and your spouse have been divorced or separated. Irs online 1040ez Whether you received a benefit on the return from the understated tax. Irs online 1040ez For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. Irs online 1040ez Significant benefit. Irs online 1040ez A significant benefit is any benefit in excess of normal support. Irs online 1040ez Normal support depends on your particular circumstances. Irs online 1040ez Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax. Irs online 1040ez Example. Irs online 1040ez You receive money from your spouse that is beyond normal support. Irs online 1040ez The money can be traced to your spouse's lottery winnings that were not reported on your joint return. Irs online 1040ez You will be considered to have received a significant benefit from that income. Irs online 1040ez This is true even if your spouse gives you the money several years after he or she received it. Irs online 1040ez Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). Irs online 1040ez The understated tax allocated to you is generally the amount you are responsible for. Irs online 1040ez This type of relief is available only for unpaid liabilities resulting from the understated tax. Irs online 1040ez Refunds are not allowed. Irs online 1040ez To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Irs online 1040ez You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Irs online 1040ez (Under this rule, you are no longer married if you are widowed. Irs online 1040ez ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. Irs online 1040ez Members of the same household. Irs online 1040ez You and your spouse are not members of the same household if you are living apart and are estranged. Irs online 1040ez However, you and your spouse are considered members of the same household if any of the following conditions are met. Irs online 1040ez You and your spouse reside in the same dwelling. Irs online 1040ez You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. Irs online 1040ez Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Irs online 1040ez Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. Irs online 1040ez Burden of proof. Irs online 1040ez You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). Irs online 1040ez You must also establish the basis for allocating the erroneous items. Irs online 1040ez Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. Irs online 1040ez The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Irs online 1040ez A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Irs online 1040ez The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). Irs online 1040ez For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. Irs online 1040ez Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Irs online 1040ez See Transfers of Property To Avoid Tax , later. Irs online 1040ez Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. Irs online 1040ez You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. Irs online 1040ez If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. Irs online 1040ez You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. Irs online 1040ez (This rule applies whether or not there was a receipt of cash. Irs online 1040ez ) You knew of the facts that made an incorrect deduction or credit unallowable. Irs online 1040ez For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. Irs online 1040ez Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. Irs online 1040ez Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. Irs online 1040ez Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. Irs online 1040ez Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. Irs online 1040ez Neither is your actual knowledge of how the erroneous item was treated on the tax return. Irs online 1040ez For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. Irs online 1040ez Example. Irs online 1040ez Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. Irs online 1040ez The IRS audited their return and found that Bill did not report $20,000 of self-employment income. Irs online 1040ez The additional income resulted in a $6,000 understated tax, plus interest and penalties. Irs online 1040ez After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. Irs online 1040ez The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. Irs online 1040ez Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. Irs online 1040ez Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. Irs online 1040ez The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. Irs online 1040ez Factors supporting actual knowledge. Irs online 1040ez The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. Irs online 1040ez The following are examples of factors the IRS may use. Irs online 1040ez Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. Irs online 1040ez Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. Irs online 1040ez Exception for spousal abuse or domestic violence. Irs online 1040ez Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. Irs online 1040ez If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. Irs online 1040ez However, you may be required to file a separate return for that tax year. Irs online 1040ez For more information about duress, see the instructions for Form 8857. Irs online 1040ez Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. Irs online 1040ez The increase may not be more than the entire amount of the liability. Irs online 1040ez A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. Irs online 1040ez This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. Irs online 1040ez If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. Irs online 1040ez Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. Irs online 1040ez Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. Irs online 1040ez An underpaid tax is an amount of tax you properly reported on your return but you have not paid. Irs online 1040ez For example, your joint 2009 return shows that you and your spouse owed $5,000. Irs online 1040ez You paid $2,000 with the return. Irs online 1040ez You have an underpaid tax of $3,000. Irs online 1040ez Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. Irs online 1040ez You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Irs online 1040ez You have an understated tax or an underpaid tax. Irs online 1040ez You did not pay the tax. Irs online 1040ez However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. Irs online 1040ez You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. Irs online 1040ez See Factors for Determining Whether To Grant Equitable Relief, later. Irs online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Irs online 1040ez A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Irs online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Irs online 1040ez See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. Irs online 1040ez You did not file or fail to file your return with the intent to commit fraud. Irs online 1040ez The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. Irs online 1040ez If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. Irs online 1040ez If the item is titled in your name, the item is presumed to be attributable to you. Irs online 1040ez However, you can rebut this presumption based on the facts and circumstances. Irs online 1040ez You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. Irs online 1040ez If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). Irs online 1040ez You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. Irs online 1040ez If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. Irs online 1040ez Factors for Determining Whether To Grant Equitable Relief The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understated or underpaid tax. Irs online 1040ez The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. Irs online 1040ez The IRS will consider all factors and weigh them appropriately. Irs online 1040ez Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. Irs online 1040ez Whether you are separated (whether legally or not) or divorced from your spouse. Irs online 1040ez A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. Irs online 1040ez A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Irs online 1040ez Whether you would suffer a significant economic hardship if relief is not granted. Irs online 1040ez (In other words, you would not be able to pay your reasonable basic living expenses. Irs online 1040ez ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. Irs online 1040ez This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. Irs online 1040ez Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. Irs online 1040ez (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. Irs online 1040ez ) Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years. Irs online 1040ez Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. Irs online 1040ez Knowledge or reason to know. Irs online 1040ez In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. Irs online 1040ez In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. Irs online 1040ez Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. Irs online 1040ez Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. Irs online 1040ez This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. Irs online 1040ez Reason to know. Irs online 1040ez In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. Irs online 1040ez Example. Irs online 1040ez You and your spouse filed a joint 2009 return. Irs online 1040ez That return showed you owed $10,000. Irs online 1040ez You had $5,000 of your own money and you took out a loan to pay the other $5,000. Irs online 1040ez You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. Irs online 1040ez Without telling you, your spouse took the $5,000 loan and spent it on himself. Irs online 1040ez You and your spouse were divorced in 2010. Irs online 1040ez In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. Irs online 1040ez These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. Irs online 1040ez The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpaid tax. Irs online 1040ez Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. Irs online 1040ez Whether your spouse (or former spouse) abused you. Irs online 1040ez Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. Irs online 1040ez Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . Irs online 1040ez Not permitted under separation of liability relief. Irs online 1040ez Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. Irs online 1040ez Proof Required The IRS will only refund payments you made with your own money. Irs online 1040ez However, you must provide proof that you made the payments with your own money. Irs online 1040ez Examples of proof are a copy of your bank statement or a canceled check. Irs online 1040ez No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. Irs online 1040ez Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. Irs online 1040ez Underpaid tax. Irs online 1040ez If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. Irs online 1040ez However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. Irs online 1040ez For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. Irs online 1040ez The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. Irs online 1040ez Understated tax. Irs online 1040ez If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. Irs online 1040ez You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. Irs online 1040ez Only installment payments made after the date you filed Form 8857 are eligible for a refund. Irs online 1040ez The amount of the refund is subject to the limit discussed next. Irs online 1040ez Limit on Amount of Refund The amount of your refund is limited. Irs online 1040ez Read the following chart to find out the limit. Irs online 1040ez IF you file Form 8857. Irs online 1040ez . Irs online 1040ez . Irs online 1040ez THEN the refund cannot be more than. Irs online 1040ez . Irs online 1040ez . Irs online 1040ez Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. Irs online 1040ez After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. Irs online 1040ez Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. Irs online 1040ez Janie and Joe Boulder filed a joint tax return for 2007. Irs online 1040ez They claimed one dependency exemption for their son Michael. Irs online 1040ez Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. Irs online 1040ez Janie did not know about the award when the return was filed. Irs online 1040ez They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). Irs online 1040ez Janie and Joe were divorced on May 13, 2009. Irs online 1040ez In February 2010, Janie filed her 2009 federal income tax return as head of household. Irs online 1040ez She expected a refund of $1,203. Irs online 1040ez In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. Irs online 1040ez Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. Irs online 1040ez Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. Irs online 1040ez Janie believes she meets the third condition. Irs online 1040ez She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. Irs online 1040ez Janie believes she meets the fourth condition. Irs online 1040ez She believes it would be unfair to be held liable for the tax because she did not benefit from the award. Irs online 1040ez Joe spent it on personal items for his use only. Irs online 1040ez Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. Irs online 1040ez In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. Irs online 1040ez Part I Line 1. Irs online 1040ez She enters “2007” on line 1 because this is the tax year for which she is requesting relief. Irs online 1040ez Line 2. Irs online 1040ez She checks the box because she wants a refund. Irs online 1040ez Note. Irs online 1040ez Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. Irs online 1040ez Line 3. Irs online 1040ez She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. Irs online 1040ez Line 4. Irs online 1040ez She checks the “Yes” box because she filed a joint tax return for tax year 2007. Irs online 1040ez Line 5. Irs online 1040ez She skips this line because she checked the “Yes” box on line 4. Irs online 1040ez Part II Line 6. Irs online 1040ez She enters her name, address, social security number, county, and best daytime phone number. Irs online 1040ez Part III Line 7. Irs online 1040ez She enters Joe's name, address, social security number, and best daytime phone number. Irs online 1040ez Line 8. Irs online 1040ez She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. Irs online 1040ez ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. Irs online 1040ez Line 9. Irs online 1040ez She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. Irs online 1040ez Line 10. Irs online 1040ez She checks the “No” box because she was not a victim of spousal abuse or domestic violence. Irs online 1040ez Line 11. Irs online 1040ez She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. Irs online 1040ez Line 12. Irs online 1040ez She checks the “Yes” box because she signed the 2007 joint tax return. Irs online 1040ez Line 13. Irs online 1040ez She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. Irs online 1040ez Part IV Line 14. Irs online 1040ez Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. Irs online 1040ez ” Line 15. Irs online 1040ez She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. Irs online 1040ez She explains this in the space provided. Irs online 1040ez Line 16. Irs online 1040ez She checks the box, “You knew that person had income” because she knew Joe had income from wages. Irs online 1040ez She also lists Joe's income. Irs online 1040ez Under “Type of Income” she enters “wages. Irs online 1040ez ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. Irs online 1040ez ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. Irs online 1040ez ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. Irs online 1040ez Line 17. Irs online 1040ez She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. Irs online 1040ez Line 18. Irs online 1040ez She checks the “No” box because, when the return was signed, she was not having financial problems. Irs online 1040ez Line 19. Irs online 1040ez She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. Irs online 1040ez She provides additional information in the space provided. Irs online 1040ez Line 20. Irs online 1040ez She checks the “No” box because Joe has never transferred money or property to her. Irs online 1040ez Part V Line 21. Irs online 1040ez She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. Irs online 1040ez Line 22. Irs online 1040ez She enters her average monthly income for her entire household. Irs online 1040ez Line 23. Irs online 1040ez She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. Irs online 1040ez Signing and mailing Form 8857. Irs online 1040ez Janie signs and dates the form. Irs online 1040ez She attaches the copy of her divorce decree (not illustrated) required by line 8. Irs online 1040ez Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. Irs online 1040ez This image is too large to be displayed in the current screen. Irs online 1040ez Please click the link to view the image. Irs online 1040ez Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. Irs online 1040ez Please click the link to view the image. Irs online 1040ez Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. Irs online 1040ez Please click the link to view the image. Irs online 1040ez Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. Irs online 1040ez Please click the link to view the image. Irs online 1040ez Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. Irs online 1040ez But do not rely on these flowcharts alone. Irs online 1040ez Also read the earlier discussions. Irs online 1040ez Figure A. Irs online 1040ez Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. Irs online 1040ez "Do You Qualify for Innocent Spouse Relief?" Figure B. Irs online 1040ez Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. Irs online 1040ez "Do You Qualify for Separation of Liability Relief?" Figure C. Irs online 1040ez Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. Irs online 1040ez Please click the link to view the image. Irs online 1040ez "Do You Qualify for Equitable Relief?" Prev Up Next Home More Online Publications